Incomplete Records

fatandforty

Please can someone help me with this

A sole trader has provided you with the following information about his opening and closing assets and liabilities:
1 January 2003 31 December 2003
Stock 16,500 17,100
Debtors 14,200 15,900
Creditors 10,200 8,300
Bank 1,400 900

During the year cash payments were made for purchases of £58,900 and for expenses of £10,500. The owner tells you that all sales are made at a profit margin of 25%. However he is not able to tell you how much he took out of the business as drawings.

What are the drawings for the year?

Am I right in thinking that I need to start with the opening and closing balances at the bank? After that I haven't got a clue. Please help!

Bookworm55

I would do this by working out all the cashflows in and out of the business, and the drawings should (hopefully!) be the balancing figure.

First, sales revenue. We have the opening and closing stocks, and purchases so we can work out cost of goods sold. We know the profit margin was 25%, so revenue will be four-thirds of this. (because three quarters of four thirds is one)

Opening stock 16500 + purchases 58,900 - closing stock 17,100 = 58,300 cost of sales
58300 cost of sales * 4/3 = revenue 77,733

So you have 77,733 coming in, and need to work out what's gone out. You already have the cash purchases and cash expenses, so need to deduct those and work out whether the changes in the other assets represent an increase or decrease in cash.

Hope this helps.

EDIT: I forgot to take account of credit purchases, and only included cash purchases in the above. I'm pretty sure the principle is OK...

sharonj

Hi Bookworm55

I'm a bit confused with how you worked out the sales revenue. I don't understand why you can't divide by 100 and multiply by 125 to get the percentage. I know this is wrong but I'm having trouble working out how you got four thirds as the answer. Even though I know this is correct.

I'm taking the FRA by computer based exam in a few weeks and thought I'd have a go at this question. I think it's really difficult as it also doesn't tell you what any money received in by debtors is. Nightmare question, hope I don't get one like this in the exam.

thanks

Bookworm55

It's the 25% margin on sales. (what you calculated was a 25% markup)

For a 25% margin, the profit is 25% of sales and the cost of sales is the other 75%.

So that 58,300 represents 75% of sales: you can divide it by 75% to get the total. (58300 /0.75= 77,733)
Arithmetically it's the same as multiplying by 4/3, but it might be clearer conceptually.

crispy

Here's my attempt (may not be correct!)

First - recreate creditors control account:

Bank Payments 58,900 B/f 10,200
C/f 8,300 *Purchases 57,000 (Balancing figure)

67,200 67,200

Then use purchases figure to work out cost of sales and sales figure:

Op. Stock 16,500
Purchases 57,000
Cl. Stock (17,100)
Cost of Sales = 56,400

56,400/75 *100 = 75,200 (Sales figure)

Now use Sales figure to recreate Debtors control A/c:

B/f 14,200 *Bank 74,400 (Balancing Figure)
Sales 75,200 C/f 15,000

89,400 89,400

Now use all above to complete bank account and find missing drawing figure:

Bank B/f 1,400
Receipts from Debtors 74,400
Payments for stock (58,900)
Payments for expenses (10,500)
Less Bank c/f (900)

Balancing Figure (Drawings) 5,500

Phew

Toffeemadblue

I think that Crispy is right, I made a mess of my attempt because I didn't recreate my Creditor control and just used the payments on purchases as Purchases DOH!

fatandforty

That is a great help - thank you so much everyone. Anyone want to do my simulation for me on Saturday??

dieselhead

A sole trader has provided you with the following information about his opening and closing assets and liabilities:
1 January 2003 31 December 2003
Stock 16,500 17,100
Debtors 14,200 15,900
Creditors 10,200 8,300
Bank 1,400 900

During the year cash payments were made for purchases of £58,900 and for expenses of £10,500. The owner tells you that all sales are made at a profit margin of 25%. However he is not able to tell you how much he took out of the business as drawings.

What are the drawings for the year?

Find purchases for the year as this will give you a figure for goods sold when you add opening stock and subtract closing stock. 57000+16500-17100=56400. The margin can then be used to work out value of sales by multiplying by 4/3 = 75200

Puchases are given by adding cash purchases and crdeit purchases which is given by subtracting opening creditors from closing crdeitors=57000

After that i give up

sharonj

dieselhead wrote: »

A sole trader has provided you with the following information about his opening and closing assets and liabilities:
1 January 2003 31 December 2003
Stock 16,500 17,100
Debtors 14,200 15,900
Creditors 10,200 8,300
Bank 1,400 900

During the year cash payments were made for purchases of £58,900 and for expenses of £10,500. The owner tells you that all sales are made at a profit margin of 25%. However he is not able to tell you how much he took out of the business as drawings.

What are the drawings for the year?

Find purchases for the year as this will give you a figure for goods sold when you add opening stock and subtract closing stock. 57000+16500-17100=56400. The margin can then be used to work out value of sales by multiplying by 4/3 = 75200

Puchases are given by adding cash purchases and crdeit purchases which is given by subtracting opening creditors from closing crdeitors=57000

After that i give up

You and me both. I hate incomplete records!